Project X Project Y Year Cash Flow Cash Flow 0 -$1000 -$1000 1 100 400 2 300 400 3 500 400 4 800 400   The cost of capital is 5 percent.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Project X Project Y
Year Cash Flow Cash Flow
0 -$1000 -$1000
1 100 400
2 300 400
3 500 400
4 800 400
 
The cost of capital is 5 percent.
 
 
1. What is each project’s NPV? Which project would you choose based on NPV rule?
 
 
 
 
 
 
 
 
2. What is each project’s IRR? Which project would you choose based on IRR rule?
 
 
 
 
 
 
 
 
3. Why IRR rule and NPV rule lead to different decisions? Which rule is more appropriate to evaluate mutually exclusive projects? Why? 
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